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"Income" Defined: Idaho-Style!

Monday, February 06, 2006

The state of Idaho has a piece of legislation pending, House Bill No. 498, that I thought was rather interesting. It is an attempt to legally define the term "Income" as it is used in the Idaho Revenue Code. You may or may not know that the federal government has never defined this term in the Internal Revenue Code. It's definition has always been a source of confusion and much debate in the Tax Honesty circles. The bill's sponsor, Representative Phil Hart, is hoping to address this problem by defining this term, at least for Idahoans. The language of the bill goes:

   63-3010A.  INCOME  DEFINED. "Income" is the annual gain derived from capital, from the employment of another's labor, or from both combined. Income is annual  profit severed from an underlying investment. Income is generated from a privileged economic activity, which is managed with skill and organized  for profit. Indirect taxes on income diminish only net income while the underlying capital investment remains whole. Net income is that which is calculated using generally accepted accounting principles.

Do you see the importance of this definition? Income, as defined, is not wages paid to an employee, but any gain derived from capital or from the employment of other persons (a.k.a. employees), or from both combined. This would effectively end Idaho's personal income tax on employees earning a wage. It puts the income tax back on employers for the privilege(?) of having employees to produce wealth for him or the company. I think this is important to all of us, as it is the first step in defining what can and cannot be taxed. It has long been argued that a tax on a man's labor is tantamount to financial slavery because it first gives to the state a share of your earnings before you ever see the fruits of your labor. I have to agree.

The end game should be to do away with the income tax entirely because it allows the state to separate you (as an individual or a corporation) from your property. This bill basically shifts the burden for the income tax from one poor sap to another. The employer would be the one liable for the income tax, but you can be sure that he will indirectly take it from the amount he pays his employees. We're right back to where we started, but we now have a fancy definition for "Income".


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